Property taxation - what you need to know!

Capital Gains, holiday lets ...

Capital Gains Tax (CGT), the levy on profits from the sale of assets such as second homes, is undergoing changes. The Spring Budget revealed reduced rates for second homes and rental properties starting in April 2024. The higher rate of CGT has been reduced from 28% to 24% and the lower rate of CGT has been maintained at 18%. It’s worth noting that CGT is not payable on your main home, only on second/holiday homes.

The threshold for CGT is shrinking too. Slashed from £12,300 to £6,000 in April 2023, it has now fallen to £3,000. Your CGT liability hinges on the assets sold and your Income Tax bracket when profit is factored into your taxable income.

Abolition of Multiple Dwellings Relief

Elsewhere in the Budget, it was announced that Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief (MDR) will be abolished from 1 June 2024, in England and Northern Ireland. MDR reduces the SDLT cost of buying two or more dwellings in the same or a linked transaction. It will not be available for any future purchases that complete on or after 1st June 2024. Purchasers who exchanged contracts on or before 6 March 2024 remain eligible for MDR regardless of when the transaction completes – provided that there is no variation of the exchanged contract after 6 March. It remains to be seen whether the Welsh and Scottish Governments will follow suit in relation to similar reliefs that apply in respect of Welsh Land Transaction Tax (LTT) and Scottish Land and Buildings Transaction Tax (LBTT).

Big changes to taxation of furnished holiday lets

The Chancellor also announced the abolition of the Furnished Holiday Lettings (FHL) tax regime – the significant tax advantages over standard long-term lets have now gone. This is because, from a taxation point of view, you are no longer running a business.

From April 2025, in the eyes of HM Revenue & Customs, despite the work involved, furnished holiday lets are treated as passive investments and taxed as such. The regime is being brought into line with standard buy to lets, which themselves have suffered from tax increases recently. The new rules will not be finalised until they appear in the Finance Act, but it looks likely they will be approved.